Shocks and frictions under right-to-manage wage bargaining : a transatlantic perspective

This paper introduces staggered right-to-manage wage bargaining into a New Keynesian business cycle model. Our key result is that the model is able to generate persistent responses in output, inflation, and total labor input to both neutral technology and monetary policy shocks. Furthermore, we compare the model’s dynamic behavior when calibrated to the US and to an European economy. We find that the degree of price rigidity explains most of the differences in response to a monetary policy shock. When the economy is hit by a neutral technology shock, both price and wage rigidities turn out to be important.